The 2013 USC Casden Multifamily Forecast projects two more years of rent increases in Southern California as the region’s rental housing market continues to absorb units faster than it completes them.
Between the second quarters of 2012 and 2013, the four Southern California apartment markets – Los Angeles, Orange, and San Diego counties and the Inland Empire – completed almost 6,700 new units, a three-year high. However, it absorbed nearly 11,900 units during the same period.
USC Lusk Center for Real Estate director Richard Green, who along with USC’s Vincent Reina and the California Association of Realtors’ Selma Hepp authored the study, says the multifamily market is being fuelled by deteriorating home affordability.
“Despite marked improvements in employment and the overall economy, the rapid increase in home prices and interest rates are pricing first-time homebuyers out of the local market,” Green says. “As more and more of these households become renters instead of buyers, we will continue to see fewer vacancies and higher rents.”
In the second quarter of this year, San Diego County had the lowest vacancy rate at 2.3 per cent, a 37.1 per cent decrease from the previous year. It was followed by Los Angeles County at 3.2 per cent vacancy (down 10.6 per cent), Orange County at 3.2 per cent (down 12.4 per cent), and the Inland Empire at 3.6 per cent (down 17.3 per cent).
While average rents increased in all four markets, Los Angeles County, where renters pay an average of USD1,435, had the largest rate of increase at 2.86 per cent. The area’s most expensive rental market, Orange County, increased 2.8 per cent to USD1,572. San Diego County rents increased 2.75 per cent to USD1,388, while the Inland Empire increased 1.9 per cent to USD1,059.
“Over the next two years, the growth rate for rents will be slower for Los Angeles and Orange County and slightly higher for the Inland Empire and San Diego. Vacancy rates will decrease across all four markets, however it will decrease at a slightly slower rate in Los Angeles, the Inland Empire, and San Diego, and at a higher rate in Orange County,” Green says.
The nearly 100-page report also analyses the 86 submarkets that comprise the four larger markets. The vacancy rate decreased in 78 of these submarkets over the past year, was unchanged in two, and increased in only six.
Other key submarket observations include:
• The El Cajon, Santee, Lakeside submarket had the lowest vacancy rate with one per cent, while Victorville had the highest vacancy rate at 7.8 per cent.
• The North Beaches submarket had the largest decrease in vacancy rate at 53.1 per cent, while the Carson, San Pedro, E. Torrance, Lomita submarket had the largest increase at 33.3 per cent.
• The submarket with the lowest rent was Victorville at USD755, while Santa Monica had the highest at USD2,328.
• Beverly Hills experienced a 7.6 per cent increase in average rent, which was the highest per cent increase of the submarkets.
• The Crenshaw submarket, which experienced a 0.39 per cent drop in average rent, was the only submarket with lower average rent in 2013.